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Stocks Sink Amid Late-Day Dash for Safety

The markets pulled back sharply in late-session action, with traders ditching cyclical stocks and seeking shelter in defensive sectors.

Today's Markets

As of 3:20 p.m. ET, the Dow Jones Industrial Average fell 97.6 points, or 0.69%, to 13937, the S&P 500 dipped 16.5 points, or 1.1%, to 1514 and the Nasdaq Composite slid 41.1 points, or 1.3%, to 3172.

After a long period of calm on Wall Street, volatility lurched higher Wednesday. The markets came under intense pressure with just about an hour and a half to go before the closing bell, while the CBOE's VIX, seen as Wall Street's fear gauge, surged 17%.

The worst losses by far were in the materials sector, prompted by tumbling metals prices. However, other economically-sensitive groups like energy, financials, technology, consumer discretionary and industrial stocks took a thrashing as well. Traditional defensive plays, like utilities, telecommunications and consumer staples were spared the brunt of the selling.

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Broad swaths of the commodities complex sold off on Wednesday. The benchmark U.S. contract slid $2.20, or 2.3%, to $94.46 a barrel. Wholesale New York Harbor gasoline dropped 2% to $3.06 a gallon. Gold tumbled $26.20, or 1.6%, to $1,578 a troy ounce -- hitting a fresh six-month low.

Fed Steadfast on Aggressive Easing, But Hints at Tapering Off

Traders also got the latest round of Federal Reserve minutes.

All but one member of the FOMC agreed the central bank should continue its highly accommodative monetary policy, including asset purchases and low interest rates, minutes from the meeting in January reveal. However, a comment that the central bank is considering "tapering" asset purchases down the line worried some traders.

"Recent Fed commentary suggests policymakers are beginning to chafe at the prospect of continued, aggressive balance sheet expansion ... but the degree of improvement in the economy to date has not been sufficient to 'put the wheels in motion' toward QE modification," Deutsche Bank Chief U.S. Economist Joseph LaVorgna wrote in an e-mail to the bank's clients.

The policy-setting board also said it saw the sudden drop in economic growth in the fourth quarter as “transitory” and sees a “moderate growth path” ahead.

The pace of merger and acquisition activity continued to heat up Wednesday, with Office Depot (ODP) revealing plans to buy OfficeMax (OMX) in an all-stock deal. Based on the February 19 closing price, that values OfficeMax at roughly $13.50 a share.

In other economic news, the Commerce Department said U.S. housing starts fell 8.5% in January from December to an annualized rate of 890,000 units, shy of the 925,000 expectation. Permits to build new homes rose 1.8% to an annualized rate of 925,000, better than the 915,000 Wall Street anticipated, and the highest since 2008.

"The pullback in starts for January was certainly larger than the consensus expected but is by no means shocking," Dan Greenhaus, chief global strategist at BTIG wrote in an email."Importantly though, permits rose again suggesting that the January decline in starts will be temporary and as the year progresses, housing starts will continue to push higher."

Homebuilders, such as KH Home (KBH), could be particularly impacted by these data.

Meanwhile, the Labor Department said prices at the producer level rose 0.2% in January from December, a slower pace than the 0.4% economists expected. Excluding the food and energy components, prices were also up 0.2%, matching forecasts.

Foreign Markets

The Euro Stoxx 50 fell 0.22% to 2657, the English FTSE 100 rose 0.4% to 6405 and the German DAX climbed 0.15% to 7764.

In Asia, the Japanese Nikkei 225 rallied 0.84% to 11468 and the Chinese Hang Seng jumped 0.71% to 23307.